- The “EUR/USD” currency pair is at risk of further losses this week as the technical setup collapses, and that will not happen until Friday when the potentially market-moving US PCE inflation figure is released.
- Recently, the EUR/USD pair is stabilizing around 1.0835 at the time of writing the analysis, stable after sharp losses on the verge of the psychological support 1.0800.
According to forex trading platforms, the euro fell sharply against the dollar last week on growing expectations that the European Central Bank will cut interest rates in June, while the same markets saw growing chances that the Federal Reserve may be able to cut rates only in July. This difference in expectations supports the continued strength of the US dollar until the end of the month. Commenting on the performance, Scotiabank analyst Shaun Osborne says the short-term technical for EUR/USD are "bearish... losses near the top of the euro's recent trading range have brought the spot price back to near the bottom end of the recent trading range."
Meanwhile, he adds that intraday price patterns are showing some signs of moderation in euro selling, "but its margin at this point and a close look at the psychological support area of 1.08 may develop later." Also, he points out that strong support at this level helped lift the euro's tone when it was tested in late February.
Technically, the EUR/USD currency pair is now trading below the 50-, 100- and 200-day moving averages, a clear indication that the trend is turning from positive to negative. The ADX indicator had fallen to 37 and is pointing down, confirming the possibility of a shift in momentum towards the downtrend. The Jefferies LLC forex research team sees it this way, "The EUR/USD pair has broken through the moving averages to the 1.0815 area. A move through 1.0800 would open up a test of the 1.0700 support level, which is near the year's lows."
Turning to the euro zone risk calendar, Spain will release inflation figures on Wednesday. As is known, Spanish inflation tends to lead euro zone inflation due to the rapid effects and could provide a clue as to whether the inflation trend in the wider euro zone is still intact.
According to the Economic Calendar, euro zone inflation figures will also be released this week, but due to the Easter holiday, they will be released early next week. The inflation data will be particularly closely scrutinized by forex market investors as they could be useful for the outcome of the ECB's policy meeting on April 11. Hence, any negative surprises could reinforce market expectations that the Governing Council will begin to pave the way for lower inflation. Moreover, a potential rate cut could come as early as the June policy meeting. On the other hand, the build-up of market expectations for an ECB rate cut could intensify, which would once again exacerbate the euro's interest rate disadvantage.
Looking at the US economic calendar, we have a key inflation report due out on Friday. The Federal Reserve watches the Personal Consumption Expenditures (PCE) index for insights into inflation pressures facing US consumers. The data is due out on Friday “note that most markets will be closed for the Easter holiday” and the headline rate is expected to hit 0.4 monthly in February. Eventually, any upside surprise in this figure would add to expectations that the Fed does not need to cut rates, which could support the recent dollar rally.
EUR/USD Technical analysis and forecast:
As expected, the downward stability of the EUR/USD currency pair will persist. Stability around the psychological support at 1.0800 will continue to support bearish control over the trend, thus preparing for stronger losses if the US inflation reading comes in stronger than expected. Moreover, technical indicators may give signs of overselling if the currency pair moves towards support levels at 1.0745 and 1.0650 respectively. Conversely, based on the performance on the daily chart, there will be no reversal of the overall uptrend without moving towards the psychological resistance at 1.1000 again.
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